United, Continental increase fares to cover higher fuel costs

ADAM SCHRECK

Published 7:00 pm, Thursday, March 13, 2008

AP Business Writer

Two of the nation's biggest airlines boosted round-trip fares by as much as much as $50 heading into the weekend, raising the stakes in their fight against rapidly rising fuel costs and putting pressure on competitors to follow suit.

United Airlines, the second-largest U.S. carrier, led the latest round of increases late Thursday, hours after crude oil prices surged to a new record of $111 a barrel. Houston-based Continental Airlines Inc. matched the increases Friday. At least two other carriers said they were studying the move.

It was the fourth week in a row that carriers have raised ticket prices, and the second round of increases led by Chicago-based United in as many weeks, according to a tally by airline ticket pricing Web site FareCompare.com.

The increase was among the largest in recent years, FareCompare.com Chief Executive Rick Seaney said.

"We're in completely uncharted territory for domestic airfare increases," Seaney said. "It's like the jump in (oil prices) has totally changed the playing field."

United spokesman Robin Urbanski said the higher fares are based on the length of the flight, meaning that trips of under 500 miles will cost travelers $4 to $10 more round-trip. Journeys of more than 1,500 miles are now $12 to $50 more expensive than before the increase, she added.

Atlanta and Seattle, Boston and Denver, and San Francisco and Philadelphia were among the thousands of city pairs that will now cost travelers $50 more round-trip on United, Seaney said.

Other carriers will likely be tempted to match the increase, especially in cities where there is little competition, industry observers said. However, airlines also run the risk of driving down demand ahead of the peak summer travel season if they push prices too high.

"The family going on vacation who now has to pay an extra $200 probably will think twice," airline industry consultant Robert Mann said.

United's latest increase comes just a week after the carrier increased its domestic fuel surcharge by an additional $6 to $10 per round trip, effectively raising fares. United's fuel surcharge now stands at $50 round-trip in markets where the airline does not compete against low-cost carriers, Urbanski said.

"Fuel is our highest expense. The cost of it clearly continues to rise," Urbanski said. "We must be able to pass along these costs just like other businesses do."

Just like gasoline prices at the pump, jet fuel prices have risen considerably along with the price of crude. By the end of last week, New York Harbor spot jet fuel was going for $3.14 a gallon, up from $1.91 a year earlier, according to data from the Energy Department's Energy Information Administration.

And like gas at the pump, they could be set to move even higher. The price for a barrel of light, sweet crude for April delivery fell 12 cents to settle at $110.21 on Friday on the New York Mercantile Exchange.

Carriers have tried to push more of their fuel costs onto consumers in recent months. Some of those increases have stuck, but stiff competition from low-cost airlines such as Southwest Airlines Co. and JetBlue Airways Corp. means many others have been rolled back after competing airlines failed to follow suit.

It's not clear that the latest round of increases will stick, especially given their size. A spokeswoman for Southwest already said the Dallas-based carrier was not raising fares.

"Nothing that's happened in the last week would justify a $50 increase," Mann said. "They're either trying to make up for lost ground … or they're looking to push through what they believe will be future fuel increases for which they're not hedged."

Tim Smith, spokesman for Fort Worth, Texas-based American Airlines, said the nation's largest carrier is studying the increase but hasn't taken action, and a spokeswoman for Atlanta-based Delta Air Lines said it has taken no action at this time.

Representatives for Northwest Airlines Corp. and US Airways Group Inc. said the carriers were studying the move, but hadn't yet decided if they would follow United's lead.

The fare increases did little to lift investors' spirits Friday, when a number of airline shares tumbled to 12-month trading lows. Shares of United parent UAL Corp. fell $1.37, or 5.7 percent, to $22.68 after earlier sinking to a 52-week low of $21.89.

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AP Business Writers Joshua Freed in Minneapolis and Harry R. Weber in Atlanta, and AP Writers Bob Christie in Phoenix and Diana Heidgerd in Dallas contributed to this story.